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Global value chains and dynamic specialization: Upgrading through FDI

Published 21 June 2022

The reconfiguration of foreign direct investment (FDI) networks and global value chains (GVCs) offers much promise for economies across Asia. In the Hinrich Foundation webinar on the transformative power of FDI, our panel of experts highlight the role of GVC-sensitive policies, particularly at the sub-national level, in catalyzing local economic development.

Watch webinar recap:

How can policymakers leverage global value chains to advance regional economic growth? What are the specific strategies that national and local policymakers can adopt to attract more FDI and participation in GVCs? In this panel discussion, experts of investment policy examine the under-appreciated link between global value chains, foreign direct investment, and subnational development. The webinar is based on a new report Climbing up global value chains: Leveraging FDI for economic development by Riccardo Crescenzi and Oliver Harman of the London School of Economics.

The wide-ranging discussion included the following highlights:

  • In their presentation, Riccardo Crescenzi, Professor of Economic Geography at the London School of Economics, and Oliver Harman, Cities Economist at University of Oxford, reminded that strategic FDI helps local economies move into higher value-added parts of a value chain, or ‘upgrade’. Understanding an economy’s position in GVCs strengthens its opportunities to climb up the chain. The authors also recommended efforts to match the comparative advantage of local economies with the needs of investing firms, so that the area can capture more value-added from economic activity.
    (Click here to download the presentation slides.)
  • In his presentation, Akhmad Bayhaqi, Senior Analyst at the APEC Policy Support Unit, resonated with the findings of the report and presented evidence from China, Indonesia, and Vietnam to underscore the importance of FDI in the growth of global value chains. He noted that economies that hold a central position in FDI networks are also hubs of global trade and can develop domestic capabilities for industrial production and exports.
    (Click here to download the presentation slides.)
  • In her intervention, Roberta Rabellotti, Professor of Economics at the University of Pavia shared insights on the typology of GVC policies based on their objectives and the respective policy instruments that can strengthen local production. She highlighted the importance of understanding the shift from a traditional trade policy paradigm towards GVC-oriented trade and industrial policies.

This session, moderated by Martin Wermelinger, Head of Investment Qualities and Incentives Team at the Organization for Economic Cooperation and Development (OECD), concluded with a Q&A for the panel of experts. The discussion focused on the challenges posed by FDI and globalization and included recommendations for governments in responding to domestic backlash and convincing local populations of the benefits of upholding an open trade and investment policy.

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